- New consortium makes an indicative offer
- Madison Dearborn Partners has until 17 April to make an offer
- Revenue up 28 per cent in the first 11 weeks of 2024
Aim-traded fintech payments group Equals (EQLS:118p), a fast-growing challenger brand in banking and international payments, days as a listed entity look numbered after it attracted bid interest from another party.
A consortium comprising Embedded Finance and TowerBrook Capital has made an indicative non-binding proposal regarding a possible offer for the whole company. This follows a strategic review that has led to ongoing takeover discussions with Madison Dearborn Partners. The Takeover Panel has given Madison an extended deadline of 17 April to either make an offer for Equals or declare that it doesn’t intend to. Equals releases annual results the day before the deadline, which will make for a good read.
That’s because Equals has been disrupting traditional banks by focusing on small and medium-sized enterprises (SMEs). Investment in a cutting-edge technology platform, digital marketing initiatives and bolt-on acquisitions have expanded its offering and addressable market, which is driving a strong earnings cycle.
Riding a robust earnings cycle
In a trading update ahead of the annual results, the board revealed that revenue has risen 28 per cent to £22.2mn in the first 11 weeks of 2024 and that’s after the group delivered 37 per cent higher revenue of £95.5mn in 2023. The operational gearing of the business means that in a positive sales cycle, profits outpace the revenue growth, hence why analysts forecast 65 per cent higher adjusted cash profits of £20mn in 2023. On this basis, earnings per share (EPS) more than doubles to 6.3p. Cash is building, too. Equals started this year with £20.6mn of net cash, up 37 per cent year-on-year, and that’s after investing £7mn on acquisitions, earn-outs and a maiden dividend during 2023.
Furthermore, with cash profit expected to rise to at least £23mn in 2024, the group’s impressive cash generation means that the cash pile could easily increase to £33mn-£35mn by the year-end. Strip out cash from Equals’ £221mn market capitalisation and its current £200mn enterprise valuation equates to less than 8.7 times current year cash profit estimates.
So, having selected the shares, at 119p, as one of my 2024 takeover targets (‘Four small-cap takeover targets to exploit’, 8 December 2023), it now looks increasingly likely that Equals will be bid for in the coming weeks.
An offer for the company around 175p a share seems fair valuation to me, or 45 per cent above the current price. It would also deliver a 127 per cent gain on my 77p recommended entry price (Alpha Research: ‘A high tech fintech payments opportunity’, 8 April 2022). Buy.
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